High court deals blow to FTC in restitution case, but House Dems offer lifeline

House Democrats unveiled language that more clearly grants the Federal Trade Commission the right to seek financial restitution and disgorgement for unfair and deceptive practices. This comes amid the Supreme Court’s unanimous ruling that the FTC’s actions in this area went beyond congressional intent.

Representative Tony Cardenas introduced a bill that would amend Section 13(b) of the FTC Act to explicitly reaffirm the FTC’s longstanding authority to obtain injunctive and equitable relief, including monetary redress for consumers in court for all violations.

The bill also gives the agency the power to seek equitable relief, including restitution for losses, contract reformation and recission, monetary refunds, and the refund of property, as well as forcing bad actors to return their ill-gotten gains.

“The FTC’s ability to return money taken from Americans through scams or fraud is under attack in the courts. Inaction is not an option and will only embolden these bad actors,” the California Democrat said in a statement.

No Republicans have signed on to the measure, which is set to be discussed at an April 27 House hearing, where acting FTC Chairwoman Rebecca Kelly Slaughter is scheduled to testify.

Although the announcement of the language came before the April 22 decision by the Supreme Court in AMG Capital Management LLC v. FTC, the justices’ rebuke of the agency gives the issue added importance.

The language of 13(b) focuses on relief that is “prospective, not retrospective,” Justice Stephen Breyer wrote for the court, citing language about violations that are occurring or imminent; about preliminary — and potentially permanent — injunctions to halt that conduct; and about allowing the agency “to seek what the words literally say (namely, an injunction).”

He took issue with the FTC’s practice of circumventing the administrative process to obtain monetary relief. He said this interpretation of 13(b) is “to read the words as going well beyond the provision’s subject matter. In light of the historical importance of administrative proceedings, that reading would allow a small statutory tail to wag a very large dog.”

The agency had been making contingency plans for dealing with a loss at the high court. Earlier this year, Slaughter said the agency planned to use its powers under Section 19 of the FTC Act. She also set up a new rulemaking group within the Office of the General Counsel to allow staff to adopt a harmonized approach across its different mission areas.

The process for giving the agency additional enforcement tools is going slower in the Senate.

After the court’s decision was announced, Senate Commerce Committee Chairwoman Maria Cantwell said in a statement: “Protecting consumers and compensating them for harm is a paramount duty of the FTC. We are working to move legislation immediately to make sure this authority is properly protected.”

No language has circulated in the Senate and Republicans are receptive to concerns raised about giving the agency too much power.

In response to pleas from all four commissioners, members of the Senate Commerce Committee used an April 20 oversight hearing to offer help but were non-committal about specifics.

Cantwell, the junior senator from Washington state, who was presiding over her first oversight hearing, said clarifying the commission’s powers under Section 13(b) of the FTC Act is a necessary deterrent “in a marketplace where there are so many legitimate actors, and yet there are some bad actors that plague the whole sector.”

The FTC wants Congress to transfer authority to obtain monetary remedies that resides within Section 19 of the FTC Act into Section 13(b).

Senator Roger Wicker, the panel’s top Republican, favors spelling out the agency’s enforcement powers but also wants to be certain that businesses are protected.

The senior senator from Mississippi voiced a desire “to ensure the proper assessment of monetary remedies and that legitimate businesses are given fair notice about practices the FTC may deem to be unfair as it expands its use of 13(b) to stop wrongdoing.”

Wicker cited a letter from US Chamber of Commerce Executive Vice President Neil Bradley to committee members expressing opposition about giving the FTC additional clout.

The organization has “significant concerns with this approach as it seeks to dramatically extend FTC authority in unbounded ways, instead of narrowly addressing the problem with a technical change focused on Section 19,” he wrote.

Under Section 19, the FTC can sue companies that violate agency rules. There is a three-year statute of limitations on these cases and the agency can ask for monetary relief in federal court after getting an administrative cease-and-desist order. The FTC must prove a “reasonable man would have known under the circumstances” that the conduct in question was “dishonest or fraudulent.”

At the hearing, commissioners urged senators to act swiftly, but there were disagreements about how far lawmakers should go.

Slaughter told lawmakers “to act quickly and act comprehensively to make sure that we are providing relief to consumers.” She added that action is needed because “uncertainty in the law is taxing the commission’s law enforcement resources.”

FTC Commissioner Noah Phillips said the agency should only be targeting gains derived from harm to consumers rather than ill-gotten profits.

“If I sell you a hotel room for a night, but you don't have adequate data security, the harm that you suffer is the hotel room minus the data security,” Phillips said, referring to the FTC’s data security case against Wyndham. “Starting, as the courts have us do in the context of fraud under 13(b) with 100 percent, the whole value of the hotel room, I don't think that's the right way to do it.”

The Supreme Court case involved AMG owner Scott Tucker, who ran a deceptive payday-lending scheme and went to prison. But Tucker maintained that because the FTC sued him under a provision authorizing a “permanent injunction,” the courts couldn’t award any monetary relief.

The FTC won at the district court level and at the US Court of Appeals for the Ninth Circuit. The agency lost a similar case in the US Court of Appeals for the Seventh Circuit. But the justices were skeptical of the agency’s stance during oral arguments in January.